HP Buys Palm for $1.2B, Targets iPhone, Android, iPad

HP made another move to expand its product lines to new markets with its purchase of Palm, giving HP a quick entrance into the fast-moving smartphone and mobile device market dominated by Apple's iPhone. The acquisition follows another huge one just closed by HP -- 3Com, which filled out HP's networking and security portfolios while giving the company a strong presence in China.

HP (NYSE: HPQ) has agreed to acquire Palm Inc. (NASDAQ: PALM)for
$1.2 billion, giving the 70-year-old technology juggernaut a foothold
in the mobile handset market while at the same time it rescues the Palm
platform in an increasingly fast-moving and competitive market.

HP said in a statement that the combination of HP's global scale and
financial strength, together with Palm's webOS platform will give HP
what it needs to compete in the smartphone – against the likes of
Apple's iPhone and a growing field of Android-based phones – and
connected mobile device markets. Those markets now also include tablet
computers that would go head-to-head against Apple's iPad device. HP
could potentially use Palm's webOS on its forthcoming tablet computers.

That statement could be seen as a snub to the Windows Mobile platform.
From another past acquisition -- Compaq -- HP owns the iPaq product
line of smart phones and PDAs, including the HP Glisten which made its
debut at the end of 2009. The Glisten runs Windows Mobile 6.5, and the
device earned HP this headline: "With the Latest IPaq, HP is Still Phoning it in."

But HP's Palm acquisition marks a new age where the computer maker
will now also own the smartphone operating system, giving it greater
control over the platform.

And the Palm deal also moves HP closer to the idea of providing true
end-to-end computing -- from the data center's servers to the smallest,
most mobile client. It's a road that HP has been traveling on in an
effort to create a single vendor approach to take to customers.

Witness HP's other huge acquisition last fall that closed just a few
weeks ago as HP added networking player 3Com. 3Com's technologies
filled out HP's networking portfolio, added a strong China presence and
beefed up its security technologies.

"Palm’s innovative operating system provides an ideal platform to
expand HP’s mobility strategy and create a unique HP experience
spanning multiple mobile connected devices," says Todd Bradley,
executive vice president, Personal Systems Group, HP, in a prepared
statement "And, Palm possesses significant IP assets and has a highly
skilled team. The smartphone market is large, profitable and rapidly
growing, and companies that can provide an integrated device and
experience command a higher share. Advances in mobility are offering
significant opportunities, and HP intends to be a leader in this
market."

Palm's revenue fell by nearly half in 2009 to $735.9 million from
$1.3 billion the year before. Palm posted a net loss of 732.2 million
in fiscal 2009. It's products have failed to keep up with the powerful
iPhone and BlackBerry brands. The company today further cut
expectations for its upcoming earnings announcement.

"If you saw the guidance Palm just put out, it was clear they had to sell," Phil Cusick, analyst at Macquarie Research told Reuters.
"Given how quickly Palm's business was falling off and how fast their
cash was going out the door, they're lucky to get what they got."

"We’re thrilled by HP’s vote of confidence in Palm’s technological
leadership, which delivered Palm webOS and iconic products such as the
Palm Pre. HP’s longstanding culture of innovation, scale and global
operating resources make it the perfect partner to rapidly accelerate
the growth of webOS," says Jon Rubinstein, chairman and chief executive
officer, Palm, in a statement. "We look forward to working with HP to
continue to deliver industry-leading mobile experiences to our
customers and business partners."

Under the terms of the merger agreement, Palm stockholders will
receive $5.70 in cash for each share of Palm common stock that they
hold at the closing of the merger, the companies said. The deal has
already been approved by both companies boards of directors. The
transaction is expected to close during HP’s third fiscal quarter
ending July 31, 2010.

Palm’s current chairman and CEO, Jon Rubinstein, is expected to remain with the company.

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com

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